NetApp Acquires LSI's Enginio External Storage Business

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NetApp on Wednesday said it has reached a deal with LSI to acquire its Engenio external storage systems business for $480 million in cash.

NetApp said Engenio will bring high-performance, large-bandwidth capability to rapidly-expanding market segments including scientific research, genomics sequencing, and full-motion video capture and digital video surveillance. "When there's a problem and no vendor has a solution, that means there's an opportunity," NetApp President and Chief Executive Officer, Tom Georgens, said in a conference call on Wednesday. "The opportunity for us to immediately exploit is around video."

NetApp intends to complement its storage business for virtualized IT infrastructures with Engenio, which it will incorporate as a NetApp business unit rather than a stand-alone entity. "Engenio is an organization that's been around a long time," Tom Georgens said. "A lot of innovations in storage were actually invented by this group. It's a mature team, that's proven the ability to develop high-performance products, and we're glad to bring them into the NetApp family."

NetApp said it will combine its sales team with Engenio's, and that Engenio's team has proven its ability to manage an OEM business model. The unit will be responsible for product development under Manish Goel, executive vice president of NetApp Product Operations.

NetApp also said its current channel reach and variety of customers require additional bandwidth capability, and that Engenio will further diversify its distribution and reseller channels, in the server-attached and embedded storage segments in particular. "We're pursuing a channel diversification strategy to further reach into a set of customers we could not get another way," he said. "Any asset we acquire has to be relevant, it has to generate revenue for our core business, and open up new markets."

Engenio's storage platform will allow NetApp to take advantage of a $5 billion incremental market opportunity over the next three years.

Georgens said NetApp's number one criterion for acquisitions is affinity, that the additional technology is similar to NetApp's existing portfolio. "We're not acquiring it to get a holding company for our portfolio," he said. "If we acquire, an asset has to have something to do with our business, it has to be something our partners can sell. We see opportunities for this class of products from our existing channels every day. There's plenty of opportunity out there to generate returns on this product."

Despite the similar portfolio, NetApp's other acquisition criteria, according to Georgens, is that there be minimal overlap with the R&D of the acquired business minimal overlap. "One of the things that has allowed NetApp to out-innovate the market is that the majority of our R&D investment is on a single architecture," he said. "We develop it once and it's available to all workloads. However, there are workloads we're not going to service. In an acquisition we look for workloads that aren't going to overlap with what we're doing in order to meaningfully creating opportunity without duplicating functionality."

While a large group of EMC's investors continue to hope that EMC will sell parts of itself to create more clear valuation for them, EMC is likely heading in the opposite direction by considering more acquisitions, according to a top analyst.